New direction for Chinese investment

True to its reputation, the year of the rooster was lively and full of surprises including some changes in direction for the Chinese economy.

One that will affect Thailand is the shift taking place in Chinese outbound investment, which fell dramatically in 2017 following new rules from the Chinese government classifying investment as “encouraged, restricted or prohibited”. Restricted or prohibited investments are those considered to be non-strategic and potentially a means to avoid capital controls. However, one type of investment which is “encouraged” is investment in the Belt and Road initiative, which increased in 2017.

At an event hosted by Bangkok Bank late last year, Professor Zheng Jinrong, chief of the Information and Technology Research Department of China Outsourcing Unit, said that Chinese outbound direct investment (OFDI) had grown 10 fold between 2002 and 2016 and had changed its character to be less about investing in resources and real estate and more about investing in manufacturing.

In 2016, Chinese OFDI in manufacturing globally rose 45.3 per cent, with most of that investment in Asia (66.4 per cent). Most of China’s outbound investment was concentrated on Belt and Road countries, including Thailand, which received 7.3 per cent of China’s total OFDI in 2016. Although there was a fall in Chinese investment in Thailand last year, the fall was less than that elsewhere and there are many factors which will ensure that investments will grow in the future. China has a keen interest in investing in Thailand’s infrastructure projects, and is a key partner in the railway being built to connect China, Laos and Thailand. This rail link will be part of the Belt and Road, and connect Kunming in China with Laos, northern and northeastern Thailand, Bangkok, and the port of Laem Chabang. The port is a key component in the Thai government’s plans to develop the Eastern Economic Corridor (EEC), spanning Chachoengsao, Rayong and Chonburi, as a logistics hub for the AEC.

In 2015, China’s Ministry of Commerce approved the establishment of the Chinese Rayong Industrial Zone in Thailand’s Eastern Seaboard (now being redeveloped as the EEC). Around 100 companies are now operating there with total investments worth more than US$8 billion. This is China’s sole economic and trade cooperation zone outside China, and according to Professor Zheng it will provide an important platform for clusters of Chinese enterprises going abroad as they can develop their businesses for international markets, build international brands, and pursue innovation and development in an international environment.

He sees Thailand, which is the gateway to Asia and Asean, as highly attractive to Chinese investors. He cites six major advantages in Thailand’s favour: ideal geographic location, developed infrastructure and quality services, attractive investment incentives, Chinese culture and heritage, a good bilateral relationship with China, and a big market – Thailand has the 2nd-largest economy, the 3rd-largest territory and the 4th-largest population in Asean.

Certainly Bangkok Bank (China) is seeing growing interest in investing in Thailand from a much broader range of Chinese investors. Chinese investment will likely spur interest from other countries as well, which will take the plan to develop Thailand as a regional logistics and manufacturing hub much closer to fruition.